Asian Shares Dragged Lower By Wall Street Weakness

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"The (Japanese) market is not sure whether Wall Street just had a brief round of profit-taking Friday, or if it's the beginning of a correction that will continue this week," said Tachibana Securities operating officer Kenichi Hirano in Tokyo. "Traders are awaiting earnings from more U.S. financial firms, after JPMorgan's disappointing results" Friday, he added.

Japan's Nikkei 225 was down 1.5%, Australia's S&P/ASX 200 was off 0.2%, South Korea's Kospi Composite lost 0.4% and New Zealand's NZX-50 fell 0.3%. Dow Jones Industrial Average futures were 18 points lower in screen trade.

In Tokyo, chip-related stocks were sharply lower as investors took profits on recent gains with Tokyo Electron down 2.6% and Advantest losing 2.6%. Among major exporters, Honda Motor lost 1.5% and Sharp fell 1.5%.

Japanese shares were also weighed by political concerns after three secretaries of ruling Democratic Party of Japan Secretary-General Ichiro Ozawa were arrested on suspicion of violating political fund laws over his purchase of land. Ozawa declared an "all-out showdown" with prosecutors in a speech Saturday to a party convention.

Players were concerned that the questions from the opposition at parliament sessions this week may delay discussion of the second supplementary budget for the current fiscal year.

Though local media polls showed support for Prime Minister Yukio Hatoyama fell in the wake of these arrests, analysts at Brown Brothers Harriman said: "there seems little chance that Hatoyama won't lead the party into the July upper house elections. Nor will the scandal impact the policy outlook in Japan."

In Korea, financial stocks were lower. "JPMorgan's weaker-than-expected revenue, with losses in its card services prompted worries about the recovery pace of (U.S.) consumer spending," will likely keep investors cautious ahead of a flurry earnings reports from U.S. banks this week, said Jung Seung-jae at Mirae Asset Securities.

KB Financial was down 2.1% and Shinhan Financial lost 3.8%.

Nuclear power-related stocks were stronger with Korea Electronic Power Corp. rising 2.6% and Doosan Heavy up 3.4%, helped by a Yonhap report that a Korea-U.S. consortium was likely to win a bid to build two nuclear power plants in Sinop in Turkey.

In Australia, materials stocks were lower due to weaker commodity prices with BHP Billiton down 1.2% and Rio Tinto down 0.5%. But banks were outperforming their U.S. peers, thanks to positive earning guidance from Commonwealth Bank of Australia Friday. CBA was up 0.5% and Westpac Bank gained 0.4%.

ANZ Bank was up 2.1% after the Age newspaper Saturday reported it was in early talks with funds management group IOOF Holdings. An ANZ spokesman declined to comment and the IOOF spokeswoman was not immediately available for comment.

"I'm a little surprised by the resilience of our market," said RBS Head of Sales Justin Gallagher. "Banks are holding it together after the CBA upgrade last week and it's a reminder that the local economy is in good shape."

"Intel fell on the view that it's as good as it gets--that's when you know people are taking a 'glass half empty' approach, which is a bit of a change. We will continue to be impacted by Wall Street, particularly before we get more comfort from Australian earnings," Gallagher added.

New Zealand shares were drifting in thin trade with Fletcher Building down 0.1% and Contact Energy down 1.3%. The focus will now shift to the upcoming earnings season in Australia and New Zealand, said First NZ Capital broker Philip Hunter. The numbers on the whole were likely be "strong off a low base," but investors' focus will be on forward looking-commentary, he said.

Foreign exchange majors were trading in tight ranges. With U.S. markets closed Monday, many investors were on the sidelines, awaiting earnings from major financial firms due this week.

The U.S. dollar was at Y90.81 from Y90.82 in late New York trade Friday, while the euro was at $1.4365 from $1.4376 and Y130.57 from Y130.54.

Lead March Japanese government bond futures were up 0.19 at 139.29 points, on demand for safe haven assets fueled by the fall in Tokyo shares and the political uncertainty. The yield on the benchmark 10-year cash JGB was down one basis point at 1.310%.

Spot gold was at $1,132.50 per troy ounce, up $2.60 from the New York's Friday close. Nymex February crude oil futures were down 20 cents at $77.80 per barrel.

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